Student loan calculator shows exactly how much Hampshire graduates will pay as interest rates on student debt soar

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Soaring inflation means soaring interest rates on student debt for Hampshire graduates. Anyone who has taken out student loans since 2012 should expect interest rates to nearly triple in September.

The rate is based on the retail price index (RPI) rate in March – which rose due to the cost of living crisis – plus up to three percentage points. The RPI, which is one of many measures of inflation, hit 9% in March, due to the rising cost of energy, fuel, food and clothing.

This means that interest rates on student loans will rise from 4.5% to 12% for high earners and from 1.5% to 9% for low earners from September. Current students will also be charged 12% on their loans while in school.

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This increase in interest means those with £50,000 debt will incur around £3,000 in interest over six months. Other than seeing their loan amount skyrocket, rising interest rates don’t directly affect how much students pay per month or, for many, how much they repay over the entire term.

For those in England and Wales on Plan 2 (those who started university after September 2012), from April after graduating they are reimbursed 9% of what they earn above over the threshold of £524 per week, £2,274 per month, or £27,295 per year. This will not change.

The debt is currently forgiven after 30 years, and many students will not repay the total plus interest by then. This means that rising interest rates only really affect those who are likely to repay all of the debt, because it means more interest to pay off.

What is likely to have more impact is that the redemption threshold does not change, it is frozen at £27,295 until 2026/27. This means that if your salary increases – which may be the case if salaries increase with inflation – you will end up paying more (or have to start paying).

See how much you’re likely to pay for your loan now and how much you’ll repay over time:

WIDGET CODE: 6951720

However, for students entering university from September 2023, things will change. As the widget shows, compared to the current plan 2, this may mean that they pay back a lot more.

The interest rate on these loans will be frozen at the RPI. However, the time at which the debt will be canceled will be increased from 30 years to 40 years, and the annual threshold will be set at £25,000 until at least 2026/27.

Not everyone is on Plan 2. Those who started university before September 2012 in England and Wales, and since 1998 in Northern Ireland are on Plan 1.

This group must start paying back 9% of the money they earn over £20,195 a year (a figure which rose in April). However, the loan is written off after 25 years.

They will also only see the interest on their loan increase by 1.75%, as it is capped at the RPI or the Bank of England base rate plus one percentage point, whichever is lower (which is certainly the rate basic for now).

Students and graduates in Scotland are on Plan 4. This has interest rates calculated in the same way as Plan 1.

Those on the plan pay 9% on earnings over £25,375 a year (again, a figure that rose in April). Similar to Plan 2, the debt is written off after 30 years.

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